This podcast series believes economic ideas have consequences. Since the way in which the world works—changes—and the way in which many conventional economists think the world should work—remains static—there exists—always—train wreck tendencies.
Adherents to economic fundamentalism precipitate train wrecks—or crises—by clinging to outdated or otherwise dysfunctional doctrines, even in the face of conflicting reality. These are the true believers who turn economics into religion.
Actual economic train wrecks are preceded by intellectual train wrecks—always. I call these—glitches—or embedded doctrinal problems—and in this podcast series we focus on two.
The First Glitch of doctrinal capitalism was evident in resistance to economic policy solutions to the Great Depression. This train wreck occurred because of a quest by fundamentalists for doctrinal orderliness, thought to be revealed by the hand of God or by natural law. It is a throwback to the orderliness quest of 18th Century physical scientist Isaac Newton. However, it bears the name of French economist J.B. Say.
Simply stated, Say’s Law declares supply creates its own demand. As proposed two centuries ago, Say’s Law is what philosophers call a tautology. As such, tautologies are mere declarations of what is held to be true. Thus, Say’s Law has no validity as a law in any objective or scientific sense.
To qualify as a law, then, a proposition must be testable objectively and found to hold up under continuing scrutiny. If an economic proposition is not capable of being invalidated, then neither is it capable of being validated.
Later in this podcast series, we’ll talk more about scientific testability. For now, an adage may be helpful regarding a visualization of how Say’s Law is used by adherents.
When your only tool is a hammer, so goes the adage, then every situation presents itself as a nail. Of course, this myopic perspective on economic policy-making is mere fanaticism, driven by ideology.
During the 1930’s, Say’s Law became a sort of hammer in the hands of fundamentalists who saw—the nail…or the problem—as society’s failure to conform to laissez-faire principles of individualism and government minimization. The hammer, then, was their hammer. It was—and is—their hammer of resistance to alternative explanations and prescriptions, and their insistence upon laissez-faire as the only acceptable path.
Stated with slightly more precision, the invocation of Say’s Law is an assertion that the act of creating goods and services by businesses, simultaneously creates a flow of income to workers, enabling their households to purchase everything produced. Also, it is an assertion that unemployment cannot occur, other than during momentary market adjustments. Consequently, the only employment policy necessary, according to this view, is no policy at all. The self-regulating market solves any unemployment problems by just waiting. No government intervention needed, they admonish.
Well, more on Train Wreck 1 and Train Wreck 2, to come.
For now, check out Capitalism in Crisis on the Web.
From Boulder Colorado, this is Jim Sawyer for Capitalism in Crisis.